A Look Ahead

In “The F&F Horizon: 2009 and Beyond,” a number of F&F experts discussed their views on the state and future of the industry from the vantage point of formulation to raw materials to the marketplace. (Perfumer & Flavorist magazine, January 2009, Page 45.) In this week’s edition of P&Fnow, we present several extended commentaries from our panel of experts and industry voices.

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It is always a stretch to look into the future with any accuracy. Given the current uncertain and turbulent times, this becomes even more difficult. Maybe the best way to approach this question is to look at market trends and then speculate how the flavor and fragrance industry can address them for the benefit of its customers as well as the ultimate consumer.

Consumer/Market Trends

  • Social responsibility movements such as fair trade, ethical sourcing and sustainability are driving new product development and positioning.
  • Health and wellness, organic, and natural will continue to grow, but possibly at a slower pace due to the economic situation. Functional benefits in food and beverage products will create a point of difference for certain brands. Super fruits such as pomegranate and goji berry will continue in popularity due to their high levels of beneficial ingredients such as antioxidants.
  • Comfort foods may accelerate their growth as more consumers deal with an economic slowdown and reduce “away from home” food consumption.
  • Sensory pleasure driven by sensates like fizzy tingling, warming, and cooling notes will grow. Flavor fusion through interesting combinations will also possibly combine with new textures such as liquid centers in confections and gum or powder centers.
  • Alternative sweeteners such as Stevia could provide a platform for new lines of products.
  • Consumer packaged goods (CPG) company consolidation could speed up due to the previously mentioned economic issues. A decline in consumer spending and lack of organic market growth can only be offset by acquisition of market share.

Flavor/Fragrance Industry Issues

  • Raw materials: In 2008, the flavor and fragrance industry saw a huge price increase in many of the commodities that are basic to its business. This, coupled with historic levels of energy costs, created margin erosion that was difficult to gain back through sale price increases or even a change to alternate sources. Finally, the industry faced issues related to off-shore supply of certain materials and some key customer policies against the use of them. In 2009, the challenge to assure a stable sustainable supply of quality raw materials at a reasonable price will remain a priority. In addition, some national and regional labeling laws will be modified (e.g., EU Natural Labeling).
  • R&D: The major CPG companies continue to search for ways to differentiate their brands from their competitors', including private label products. Flavor suppliers, for example, can assist with this effort by combining unique technologies such as taste modifying materials with proprietary encapsulation techniques to “insulate” the customer brand from competition. Suppliers can also identify new sources of raw materials to replace some of the higher priced ones where softening of the market has not yet occurred. Meanwhile, CPG companies continue to increase their dependence on flavor company product development resources. As a true product development partner, suppliers are asked to develop and even produce market-ready products that can be adopted quickly into the CPG distribution system.
  • Regulatory: This is an ongoing international challenge with issues such as REACH and labeling changes for Europe, as well as various local and regional regulatory agencies in Latin America and Asia-Pacific. In the United States there are ongoing federal, state and local issues that address topics such as respiratory safety. Also, there is the potential for a different posture from the US Food and Drug Administration as a result of the change in administration. At the same time, challenges for the industry remain in areas such as safety evaluation and approval of unique new ingredients.
  • General: If there is a slowdown of market growth due to customer merger/acquisition activity and lower new product introduction rates, the flavor and fragrance industry could see accelerated consolidation at all levels: global, regional and national companies.

Keys to Success
The companies that will succeed in 2009 are those that:

  • Have done their homework over the past few years creating/identifying more cost-effective and sustainable sources of raw materials.
  • Have invested research dollars into new natural aroma chemicals or sources of natural aroma chemicals that comply with the changes coming to certain national/regional labeling laws.
  • Have continued to expand application/food technology capabilities to meet changing requirements of CPG companies as they expand existing products and explore new product areas.
  • Have established programs pursuing social responsibility (fair trade), health benefits and supplement style claims, pro and prebiotic foods and drinks, removal of artificial ingredients and colors based on consumer demand/response to emerging studies.

Looking forward, it appears 2009 will be a challenging year for all involved in the flavor and fragrance industry. New approaches will be needed by all to address issues created by economic, political and changing consumer consumption patterns.

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